FONTERRA STRATEGY REFRESH - NZX - New … · FONTERRA STRATEGY REFRESH ... Excludes the sales volumes of the Western Australia business that was sold in March ... • Milk powder

FONTERRA STRATEGY REFRESH& 2012 INTERIM RESULTS

Fonterra Co-operative Group Ltd

29 March 2012

Page 2Fonterra Co-operative Group Ltd

OVERVIEW• 2012 INTERIM RESULTS• STRATEGY REFRESH• QUESTIONS & ANSWERS

SIR HENRY VAN DER HEYDEN



HIGHLIGHTS• Net profit after tax up 18% to $346m

• Normalised earnings before interest and tax(1)

up 8% to $552m

• Strong growth in NZ milk production, up 10% season-to-date

• Sales volume gains of 5%(2) were broad based, reflecting attractiveness of dairy around the world

• Declared higher interim dividend of 12 cents per share, up 4 cents

Notes:(1) Represents normalised earnings before interest and tax, adjusted for non-recurring items(2) Excludes the sales volumes of the Western Australia business that was sold in March 2011

509496

552

H1 2011 H2 2011 H1 2012

Normalised EBIT ($m)(1)


BUMPER MILK FLOWS

0

50

100

150

200

250

Jun Jul Aug Sep Oct Nov Dec Jan

NZ Milk Collections (million kgMS)

20112012

+10%


2,000

2,500

3,000

3,500

4,000

4,500

5,000

Aug

2010

Sep

2010

Oct

201

0

Nov

201

0

Dec

201

0

Jan

2011

Feb

2011

Mar

201

1

Apr

2011

May

201

1

Jun

2011

Jul 2

011

Aug

2011

Sep

2011

Oct

201

1

Nov

201

1

Dec

201

1

Jan

2012

Feb

2012

Mar

201

2

GDTTM WMP Prices

GDTTM PRICES RELATIVELY FLAT COMPARED TO LAST YEAR

USD

per

met

ric to

nne


FONTERRACO-OP CHALLENGES

2011 Final Payout

Latest Payout Forecast(1)

$8.25 $6.75-$6.85

Note:(1) Payout before retentions assumes a farmer is 100 per cent shared up (owning one share per kg MS of annual milk production).

(1)

THEO SPIERINGS



STRONG FIRST HALF 1H 2012 $m Change %

External Volume(thousand metric tonnes) 1,927 5(1)

Revenue 10,026 7

Normalised EBIT(2) 552 8

Normalised EBIT Margin(3) 5.5% 7 bps

Profit after tax 346 18

Earnings per share(4) 24 14

Dividend per share(4) 12 50

Note:(1) Excludes the sales volumes of the Western Australia business that was sold in March 2011(2) Earnings before interest and tax, adjusted for non-recurring items(3) Calculated as normalised EBIT as percentage of revenue(4) Cents per share


KEY DRIVERS

• Solid growth in total sales volume • Improved margins in Standard & Premium

Ingredients• ANZ impacted by challenging trading conditions• Stronger NZD had negative impact on earnings

of our Asia/AME & Latam operations


OUTLOOK• Stronger global milk production expected in

2012• Milk powder demand appears robust but dairy

commodity prices likely to remain under some pressure through to mid 2012

• Forecast Farmgate Milk Price of $6.35 per kgMS and net profit after tax guidance of 40-50 cents per share equating to $570-$720 million


MILK FOR SCHOOLS

• Launched Fonterra Milk for Schools programme

• Northland pilot – 112 schools, 10,000 children

• Test systems and processes• Decision in term 3 on national

roll out

JONATHAN MASON



STANDARD & PREMIUM INGREDIENTS

• Normalised EBIT growth of 44%(1)

• Key performance drivers:- improved margins

- swapping long-term contracts to those with shorter tenure indexed to GDTTM

- strong underlying growth in foodservice & infant nutrition

- effective optimisation of sales book

- productivity improvements and cost savings helped offset cost of inflation on a per unit basis

External Volume

Growth(1)

+7%

Revenue Growth(1)(2)

+10%

Notes:(1) H1 2012 versus H1 2011(2) Includes inter-segment revenue of $868m (H1 2011 - $873m)

189231

273

H1 2011 H2 2011 H1 2012

Normalised EBIT ($m)


AUSTRALIA /NEW ZEALAND

• ANZ’s performance after adjusting for the sale of the WA business in 2011 and in constant currency(3):- External volume up 4%

- Revenue up 2%

- Normalised EBIT 16% lower

• Despite challenging trading conditions, consumer brands continue to compete vigorously and generate strong earnings and free cash flow

• Tough trading environment expected to persist for the remainder of the year

External Volume

Growth(1)

-12%


- 4%

Notes:(1) H1 2012 versus H2 2011(2) Includes intersegment revenue of $399m (H1 2011 - $373m)(3) Constant currency movement calculated by applying prior period foreign exchange rates to current period results

154

102124

H1 2011 H2 2011 H1 2012



Notes:(1) H1 2012 versus H2 2011(2) Constant currency movement calculated by applying prior period foreign exchange rates to current period results

ASIA/AFRICA & MIDDLE EAST

• On a constant currency basis, normalised EBIT was 5%(1)(2) lower, due largely to:

- higher sales & marketing costs

- increased input costs

• Core focus is execution of growth strategy:

- investing in China

- growing foodservices

- category expansion

• Continued positive outlook for the region

External Volume

Growth(1)

+4%

Revenue Growth(1)

+7%

97 9684

H1 2011 H2 2011 H1 2012



LATIN AMERICA

• On a constant currency basis, normalised EBIT was up 6%(1)(3)

• Soprole had a strong first half in constant currency terms with earnings up 15%

• Normalised contribution from Dairy Partners of America was $2m lower, impacted by trading conditions in Brazil

External Volume

Growth(1)

-6%


-5%

Notes:(1) H1 2012 versus H2 2011(2) Includes no inter-segment revenue (H1 2011:$3m)(3) Constant currency movement calculated by applying prior period foreign exchange rates to current period results

6455

62

H1 2011 H2 2011 H1 2012



STRONG BALANCE SHEET

57.6%

59.6%

53.0%54.3%

44.9%

48.5%

41.8%

46.9%

Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12

Economic Gearing(1)

Target Range 45-50%

Note:(1) Gearing is measured in terms of economic net interest bearing debt over economic net interest bearing debt plus equity (reflecting the effect of debt hedging in place at balance date). Equity excludes the cashflow hedge reserve


TRADING AMONG FARMERS

MARCH

• Strategy Refresh

• Interim Result

APRIL/MAY

• Board considers first four pre-conditions and prepares report to Shareholders’ Council

JUNE/JULY

• Shareholders’ Council considers Board report and fifth pre-condition

• DIRA Amendment Bill final reading expected

• Due Diligence Committee Report

• Board and Shareholders’ Council formal resolution on pre-conditions

AUGUST-DECEMBER

• Workshops on the online broker system for farmer shareholders, and registration for share trading

• Prepare & launch market

THEO SPIERINGS



STRENGTHS

• Access to quality milk• Efficient farms• Integrated model• Strong, broad product

portfolio• Globally distinctive

customer base• Great people

OPPORTUNITIES

• Forecast global volumedemand growth of at least 100 billion litres by 2020

• NZ could supply an additional 5 billion litres

• Milk pools will develop outside NZ

• Value growth driven by customer/consumer needs in each geography

STRATEGIC CHOICES• Target geographies and

nutritional needs• Ensure strong alignment

with vision• Fully leverage our

integrated model• Focus where we have

clear ability to win

Build on what we have


STRATEGY SETS PLATFORM FOR GROWTH

Improve Value Drivers Drive Return on Capital (ROCE)

Improve Shareholder Value

• Volume growth

• Value growth

• Strong operating & investing cash flow

Improve Return on Capital Employed

Farmer Income

STRENGTHS OPPORTUNITIES STRATEGIC CHOICES

Value of Fonterra


EMERGING MARKETS ARE KEY

Demand Growth Milk Supply Growth

MENA

2%4%

10%

India

2%

7%

China

4%

2-3%

LATAM

2%2%

ANZ

<1%

1%

Nth America

<1%

Outlook to 2020

<1%

Europe

<1%


Source: FAO, Euromonitor, Fonterra estimates


EXCITING GROWTH FORECASTS

17 Bn L

49 billion litres

375 billion litresNew Zealand

Globally Traded Dairy Market

Formal Dairy Market

22 bn L by 2020(2% CAGR)

84 bn L by 2020 (5-6% CAGR)

500 bn L by 2020 (3% CAGR)


Source: FAO, UN Comtrade, Euromonitor, Fonterra estimates


CONSUMERMEGATRENDS


Enabling the aging to maintain healthy, active lifestyles

Demand for better for you convenience food

Best nutrition for mother and child

Demand for healthy nutrition


STRATEGY PRINCIPLES

Organisational Capabilities

Our Vision and Objectives

Cash Generators Growth Generators New Business Generators

Capital Structure

What is our source of cash to generate &

finance our growth?

‘Must do’

What will be the sources of our future cash flow?

‘Can do’

What are our mould-breaking opportunity

areas to invest in?

‘Want to do’



NEW GROUP PORTFOLIO

Our Vision and Objectives

Cash Generators

‘Must do’

Growth Generators

‘Can do’

New Business

‘Want to do’

Organisational Capabilities Capital Structure

New Zealand Milk

Middle-east & North Africa (MENA)

ANZ

US

Europe

China

ASEAN

Latin America (LATAM)

Out-of-Home Nutrition

India

Advanced Nutrition

Optimise

Right size



SEVEN STRATEGIC PATHS

1. Optimise New Zealand milk

2. Build and grow beyond our current consumer positions

3. Deliver on foodservice potential

4. Grow our position in mobility

5. Develop selected leading positions in paediatrics and maternal

6. Selectively invest in milk pools

7. Alignment of business & organisation to enable strategy


Source: FAO, Euromonitor, Fonterra estimates


SUMMARY

1. Growth – volume and value

2. Focuses on our strengths

3. Clear Choices

Multiple milk pools• Global exports of home milk• Local milk pools

Integration backto the farm

End-to-end business• B2B Ingredients; and• B2C Branded

4. Executable

Documents

FONTERRA STRATEGY REFRESH - NZX - New … · FONTERRA STRATEGY REFRESH ... Excludes the sales volumes of the Western Australia business that was sold in March ... • Milk powder